“Some (other) members of the European Union could also be affected, given the strong financial and trade linkages that exist between the members of the monetary union and the European Union,” Yves Lemay, a Moody’s sovereign credit analyst in London, told Reuters.

Greeks head back to the polls on June 17 for a parliamentary election after an inconclusive vote on May 6. If they vote for socialist parties that have rejected the terms of a 130 billion-euro bailout plan, this could ultimately lead to Greece leaving the euro.

Should an agreement between whatever Greek government is formed and its international creditors be reached, Moody’s said euro area ratings would generally hold at current levels for the time being.

Greece is rated just above default by Moody’s at C, while Standard & Poor’s gives it a CCC rating, similar to Fitch Ratings.

SPANISH BANKING WOES

Spain is expected to ask the euro zone for help with recapitalizing its banks this weekend, sources in Brussels and Berlin told Reuters on Friday. It would be the fourth country to seek assistance since Europe’s debt crisis began.

Lemay said that should that happen, Moody’s would assess the program and terms of any help for Spanish banks “and then at that point conclude on whether there is a need to make any necessary adjustments.”

Moody’s said Spain’s banking sector crisis is largely specific to the country itself and would not pose a major source of contagion to other euro area countries.

However, Italy, much like Spain, shares a growing funding reliance on the European Central Bank through its banks.

“The European Central Bank’s role as a temporary liquidity provider cannot resolve tensions in the funding markets over the medium term, and has not done so,” Moody’s said in its report.

“The temporary calm induced by the ECB Long Term Refinancing Operation (LTRO) has dissipated, while the pronounced trend in re-nationalization of government bond and other funding markets continues to expose peripheral countries to the loss of market access,” Moody’s said.

Spain is rated A3 with a negative outlook by Moody‘s, putting it one notch above the BBB-plus rating with a negative outlook from S&P. Fitch on Thursday slashed Spain’s credit rating by three notches to BBB with a negative outlook, putting it two notches below Moody‘s.

Moody’s said the information regarding the state of the Spanish banking system and the increasing probability of Greece leaving the euro area represent material changes not currently encapsulated in its ratings.